Your Plain-English Guide to Financial Jargon

A bare trust is a legal structure often used when an SMSF borrows money to buy property. Because super fund rules prevent the SMSF from holding the property title directly until the loan is fully repaid, a bare trust holds the title on the fund’s behalf in the meantime. The bare trustee has no active duties and simply holds the asset until the SMSF loan is paid off, at which point the property is transferred into the fund’s name. It is a technical but essential part of SMSF property lending.

A bridging loan is a short-term loan designed to cover the gap when you are buying a new property before selling your existing one. It lets you act quickly in a competitive market without being stuck waiting for your current home to settle. Interest rates on bridging loans tend to be higher than standard home loans, and the loan is typically repaid once your old property sells.

Capital gains tax is the tax you pay on the profit when you sell an asset, such as an investment property, for more than you paid for it. Your main residence is generally exempt from CGT, but investment properties are not. If you hold the property for more than 12 months, you may be entitled to a 50% discount on the capital gain. The gain is added to your taxable income for the financial year in which the sale occurs.

A caveat is a legal notice placed on a property’s title to warn anyone searching the title that a third party has a claim or interest in that property. It effectively prevents the property from being sold or dealt with until the claim is resolved. Caveats can be lodged for various reasons, such as an unpaid debt or a dispute over ownership. If you encounter a caveat during a purchase, your conveyancer will investigate and work to have it removed before settlement.

Chattels are moveable items included in a property sale that are not permanently fixed to the land or building. Common examples include curtains, blinds, free-standing appliances, and light fittings that are not hardwired. The contract of sale should clearly list which chattels are included so there are no surprises on settlement day. In some states, the value of chattels can be separated from the property price, which may reduce the stamp duty payable.

A comparison rate is a single percentage figure designed to help you compare the true cost of different home loans. It takes the advertised interest rate and folds in most fees and charges associated with the loan, giving you a more realistic picture of what you will actually pay. By law, lenders in Australia must display a comparison rate alongside their headline rate. Keep in mind it is calculated on a standard $150,000 loan over 25 years, so your actual costs may differ.

A construction loan is specifically designed for building a new home or carrying out major renovations. Instead of receiving the full loan amount upfront, funds are drawn down in stages that match the builder’s progress payments. You usually only pay interest on the amount that has been drawn, which keeps repayments lower during the build phase. Once construction is complete, the loan typically converts to a standard home loan.

A conveyancer is a licensed professional who handles the legal paperwork involved in buying or selling property. They manage tasks like title searches, contract reviews, liaising with the other party’s legal representative, and ensuring all conditions are met before settlement. Using a conveyancer or solicitor is standard practice in Australian property transactions and helps protect your interests throughout the process.

A deposit bond is a guarantee issued by an insurance company that promises the seller you will pay the deposit at settlement. It is useful when your funds are tied up elsewhere — for example, in a term deposit or the sale of another property. The bond is not a loan; you still need to come up with the full deposit by settlement day. It simply bridges the timing gap so you can exchange contracts without handing over cash immediately.

A discharge fee is the charge your lender applies when you pay out and close your home loan. It covers the administrative cost of removing the mortgage from the property title. The fee varies between lenders but generally falls in the range of a few hundred dollars. It is one of the costs to keep in mind when refinancing or selling your property.

Equity is the difference between what your property is worth and how much you still owe on it. If your home is valued at $700,000 and your remaining loan balance is $400,000, you have $300,000 in equity. As you pay down your mortgage and your property value grows, your equity increases. You can access this equity to fund renovations, invest, or use as a deposit on another property.

The First Home Owner Grant is a one-off payment from the state or territory government to help eligible first home buyers purchase or build a new home. The amount and eligibility criteria vary by state, but it is generally available for new builds or substantially renovated properties below a certain value. It is separate from stamp duty concessions, so you may be able to claim both. Your broker can help you work out exactly what you are entitled to.

A fixed interest rate stays the same for an agreed period, typically one to five years. Your repayments are locked in and will not change regardless of what happens in the broader market, making it easier to budget. The trade-off is reduced flexibility — most fixed-rate loans charge break costs if you repay the loan early or make large extra repayments during the fixed term.

A guarantor is someone, usually a close family member, who offers their own property or assets as additional security for your home loan. This can help you borrow more than you could on your own, often allowing you to purchase with a smaller deposit and avoid LMI. The guarantor does not give you cash; instead, they put a limited portion of their property equity on the line. If you cannot meet your repayments, the lender can call on the guarantor to cover the shortfall.

An interest-only loan means your repayments only cover the interest charges for a set period, usually between one and five years. During that time, the amount you owe does not decrease. This structure keeps repayments lower in the short term, which can suit investors or borrowers managing cash flow. Once the interest-only period ends, repayments switch to principal and interest and will be higher than if you had been paying P&I from the start.

LMI is a one-off insurance premium that protects the lender — not you — if you default on your home loan. It is typically required when your deposit is less than 20% of the property value, meaning your LVR exceeds 80%. The cost can run into thousands of dollars and is usually added to your loan balance. Some government schemes and guarantor arrangements can help you avoid LMI altogether.

LVR compares the size of your loan to the value of the property you are buying or refinancing, expressed as a percentage. For example, if you borrow $400,000 to purchase a $500,000 home, your LVR is 80%. Lenders use this figure to gauge risk — the higher the LVR, the riskier the loan is considered. Keeping your LVR at or below 80% usually means you can avoid paying Lenders Mortgage Insurance.

Negative gearing occurs when the costs of owning an investment property — including loan interest, maintenance, and management fees — exceed the rental income it generates. The resulting loss can be offset against your other taxable income, reducing the amount of tax you pay. It is a widely used strategy among Australian property investors, though it relies on the expectation that the property will grow in value over time to make up for the short-term losses.

An offset account is a transaction account linked to your home loan. The balance in this account is deducted from your outstanding loan amount before interest is calculated, which means you pay less interest over time. For example, if you owe $400,000 and have $30,000 in your offset account, you only pay interest on $370,000. It works like a regular everyday account, so you can still access your money whenever you need it.

Pre-approval, sometimes called conditional approval, is a written indication from a lender that they are prepared to lend you a certain amount based on an initial assessment of your finances. It gives you a clear budget before you start house-hunting and signals to sellers and agents that you are a serious buyer. Pre-approval usually lasts between three and six months and is subject to a full assessment once you find a property.

With a principal and interest loan, each repayment chips away at both the amount you originally borrowed (the principal) and the interest charged by the lender. Over the life of the loan, you gradually pay down the full debt. Most owner-occupier home loans are structured this way because it is the most cost-effective option in the long run.

A redraw facility lets you withdraw any extra repayments you have made on your home loan. If you have been paying more than the minimum each month, that surplus builds up and becomes available for you to access later. It is a handy way to reduce interest over time while still keeping a safety net. Be aware that some lenders place minimum redraw amounts or processing fees on this feature.

Refinancing means replacing your current home loan with a new one, either with the same lender or a different one. People refinance to secure a lower interest rate, access equity in their property, consolidate debts, or change their loan features. While it can save you a significant amount of money, it is important to factor in any break costs, discharge fees, and establishment fees before making the switch.

Serviceability is the lender’s assessment of whether you can comfortably afford to repay a loan. They look at your income, existing debts, living expenses, and dependants, then stress-test the numbers at a higher interest rate to make sure you could still cope if rates rose. A strong serviceability position increases your borrowing power, while high expenses or debts can reduce the amount a lender is willing to offer.

Settlement is the final legal step in a property transaction where ownership officially transfers from the seller to the buyer. On settlement day, your lender releases the loan funds to the seller, the balance of the purchase price is paid, and you receive the keys. In most Australian states, settlement occurs four to six weeks after contracts are exchanged, though this period is negotiable.

An SMSF is a superannuation fund that you manage yourself, rather than having an industry or retail fund do it for you. With an SMSF, you choose where your retirement savings are invested, including the option to purchase property. Running an SMSF comes with significant legal and administrative responsibilities, and the Australian Taxation Office regulates them closely. It is generally suited to people with higher super balances who want hands-on control of their investments.

A split loan divides your mortgage into two or more portions, each with a different interest rate type. For instance, you might fix half your loan to lock in a predictable repayment, while keeping the other half on a variable rate to take advantage of potential rate drops. This approach gives you a blend of certainty and flexibility, and is popular with borrowers who want to hedge their bets.

Stamp duty is a state or territory government tax you pay when purchasing property. The amount depends on the property’s purchase price, its location, and whether you are a first home buyer, investor, or foreign purchaser. It can be one of the largest upfront costs of buying a home. Some states offer concessions or exemptions for first home buyers or lower-priced properties, so it is worth checking what applies to you.

A valuation is an independent assessment of a property’s market value, carried out by a qualified valuer. Your lender will order a valuation before approving a loan to make sure the property is worth enough to support the amount you want to borrow. The valuer considers factors like the property’s condition, size, location, and recent comparable sales in the area. The cost is usually a few hundred dollars and may be paid by you or the lender, depending on the product.

A variable interest rate can move up or down over the life of your loan, usually in response to changes in the official cash rate set by the Reserve Bank of Australia. When rates drop, your repayments decrease; when they rise, your repayments go up. Variable loans tend to offer more flexibility, including unlimited extra repayments, offset accounts, and redraw facilities.